Prime at 4.7%: Your Variable Payment Moves Now, Your Fixed Rate Waits for Renewal
In July 2022, Canada's big banks raised their prime rate to 4.7% right after the Bank of Canada lifted its policy rate by a full percentage point. Some Edmonton homeowners saw a bigger mortgage withdrawal soon after. Others saw the exact same amount leave their account and assumed they'd been spared. Which group you fall into the next time prime moves tells you whether a hike is hitting your budget now, slowing how fast you pay off your home, or waiting for you at renewal.
Maybe you've done this yourself: seen a rate headline, opened your banking app, and found the usual mortgage payment sitting there. Feeling relieved is reasonable. It's also incomplete, because an unchanged mortgage payment does not always mean an unchanged borrowing cost. Whether you just bought your first place, moved up, or carry a rental, the useful question stays the same: what does this change in my budget now, and what might it change later?
What a prime increase changes in each type of mortgage
Prime is your lender's reference rate. A variable mortgage is priced as prime minus a discount or plus a premium, set in your contract, so your rate moves with prime even though it rarely equals it. Put the three common setups side by side on the same three questions: rate, payment and principal.
Variable rate, adjustable payment. Your rate rises, and your required payment rises with it on your lender's schedule. Principal repayment stays roughly on track because the bigger payment covers the extra interest. The pressure lands in your monthly cash flow.
Variable rate, fixed payment. Your rate rises, but your payment stays the same at first. The lender takes the extra interest out of the same withdrawal, so less goes to principal. Your budget feels nothing, and your mortgage shrinks more slowly.
Fixed rate. Your rate and your regular payment stay as written in your contract for the rest of the term. Today's hike touches neither.
So a variable rate doesn't automatically mean a variable payment. Check both lines on your paperwork. Then ask your lender when a new rate takes effect and when your payment adjusts, because announcement day and payment day aren't always the same.
Why a steady payment can still cost you more
The two calm-looking options carry risks you won't spot on a statement.
With a fixed-payment variable mortgage, every hike shifts more of your payment to interest. Push rates high enough and you reach your trigger rate, the point where your payment no longer covers the interest at all. Your contract spells out what the lender can do then, which may include raising your payment or asking for a lump sum. Ask your lender for your trigger rate now, and look at how much principal you paid down last year. If that number is falling, your steady withdrawal is covering for a slower payoff.
With a fixed rate, the risk waits for renewal. Your next term is priced on whatever rates are on offer then. New fixed offers follow Government of Canada bond yields more closely than prime, so they can move before or after a Bank of Canada announcement. Note your renewal date and run your payment at a few higher and lower rates well before it arrives, so the new number is a plan you've already made room for.
One more account deserves a look: a home equity line of credit or personal line tied to prime usually reprices right away, even when your mortgage is locked. If you use one to fund a rental's repairs or a down payment on the next property, that's where a hike shows up first.
Payment stability tells you what leaves your account this month. Cost stability tells you what your borrowing costs over time. A fixed rate gives you both, and only until its term ends.
A quiet statement is good news for this month's budget. Whether your mortgage cost is truly unchanged is a separate question, and you can answer it in five minutes. Open your latest mortgage statement or contract and find two things: whether your rate can change during the term, and whether your payment can. Once you know which one moves, the next prime headline stops being a guess about your money.
In July 2022, Canada's big banks raised their prime rate to 4.7% right after the Bank of Canada lifted its policy rate by a full percentage point. Some Edmonton homeowners saw a bigger mortgage withdrawal soon after. Others saw the exact same amount leave their account and assumed they'd been spared. Which group you fall into the next time prime moves tells you whether a hike is hitting your budget now, slowing how fast you pay off your home, or waiting for you at renewal.
Maybe you've done this yourself: seen a rate headline, opened your banking app, and found the usual mortgage payment sitting there. Feeling relieved is reasonable. It's also incomplete, because an unchanged mortgage payment does not always mean an unchanged borrowing cost. Whether you just bought your first place, moved up, or carry a rental, the useful question stays the same: what does this change in my budget now, and what might it change later?
What a prime increase changes in each type of mortgage
Prime is your lender's reference rate. A variable mortgage is priced as prime minus a discount or plus a premium, set in your contract, so your rate moves with prime even though it rarely equals it. Put the three common setups side by side on the same three questions: rate, payment and principal.
Variable rate, adjustable payment. Your rate rises, and your required payment rises with it on your lender's schedule. Principal repayment stays roughly on track because the bigger payment covers the extra interest. The pressure lands in your monthly cash flow.
Variable rate, fixed payment. Your rate rises, but your payment stays the same at first. The lender takes the extra interest out of the same withdrawal, so less goes to principal. Your budget feels nothing, and your mortgage shrinks more slowly.
Fixed rate. Your rate and your regular payment stay as written in your contract for the rest of the term. Today's hike touches neither.
So a variable rate doesn't automatically mean a variable payment. Check both lines on your paperwork. Then ask your lender when a new rate takes effect and when your payment adjusts, because announcement day and payment day aren't always the same.
Why a steady payment can still cost you more
The two calm-looking options carry risks you won't spot on a statement.
With a fixed-payment variable mortgage, every hike shifts more of your payment to interest. Push rates high enough and you reach your trigger rate, the point where your payment no longer covers the interest at all. Your contract spells out what the lender can do then, which may include raising your payment or asking for a lump sum. Ask your lender for your trigger rate now, and look at how much principal you paid down last year. If that number is falling, your steady withdrawal is covering for a slower payoff.
With a fixed rate, the risk waits for renewal. Your next term is priced on whatever rates are on offer then. New fixed offers follow Government of Canada bond yields more closely than prime, so they can move before or after a Bank of Canada announcement. Note your renewal date and run your payment at a few higher and lower rates well before it arrives, so the new number is a plan you've already made room for.
One more account deserves a look: a home equity line of credit or personal line tied to prime usually reprices right away, even when your mortgage is locked. If you use one to fund a rental's repairs or a down payment on the next property, that's where a hike shows up first.
Payment stability tells you what leaves your account this month. Cost stability tells you what your borrowing costs over time. A fixed rate gives you both, and only until its term ends.
A quiet statement is good news for this month's budget. Whether your mortgage cost is truly unchanged is a separate question, and you can answer it in five minutes. Open your latest mortgage statement or contract and find two things: whether your rate can change during the term, and whether your payment can. Once you know which one moves, the next prime headline stops being a guess about your money.
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